Bertelsmann Weighs Public Offering

By ERIC PFANNER

Published: March 29, 2012

BERLIN -- Bertelsmann, the biggest media company in Europe, said Wednesday that it was considering a public offering of stock to raise money for expansion, a statement that marked a striking change of heart by the controlling Mohn family.

Thomas Rabe, who took over as chief executive of Bertelsmann this year, said the company was looking for ways to accelerate its move into digital businesses and developing economies. While Bertelsmann's portfolio includes the publisher Random House and the developer of international television hits like ''Who Wants to Be a Millionaire,'' 80 percent of the company's revenue comes from slow-growing Europe.

But a stock market flotation would be a big cultural shift at Bertelsmann, which is based in the sleepy western German town of G?sloh. A previous chief executive, Thomas Middelhoff, who oversaw a dot-com era campaign to expand across the globe and into cyberspace, was dismissed in 2002, in part because the Mohn family balked at his entreaties to take the company public.

Since then, Bertelsmann has largely been focused on cleaning up its debt-laden balance sheet. Meanwhile, Bertelsmann's competitors, including U.S.-based conglomerates like News Corp. and Walt Disney, have been marching ahead, into developing markets in Asia and into the digital realm.

A caretaker chief executive, Hartmut Ostrowski, left at the end of last year, in a decision that associates attributed at the time to ''burnout,'' making the way for Mr. Rabe, an ambitious, Luxembourg-born executive who speaks German, French, English, Dutch and Spanish. Mr. Rabe, 46, was promoted from chief financial officer and was the driving force behind recent Bertelsmann investments of modest size, like a joint venture in music publishing with Kohlberg Kravis Roberts, the private equity firm.

''Clearly if we are going to make more strategic and sizable investments, then more capital will be required,'' Mr. Rabe said during an interview in Berlin.

Mr. Rabe said an initial public offering was only one of several capital-raising options being considered by Bertelsmann. No decisions are likely before the autumn, after a broad, companywide review of strategy, he added.

But the company signaled its intentions Wednesday when it said it planned to change its legal status to a corporate structure that has been adopted by German family-controlled concerns that are included in the DAX-30 index of German stocks, including Henkel, Fresenius and Merck.

''It opens up the option of raising equity from third parties,'' Mr. Rabe said. ''Whether we are going to use it, and when, and to what extent, remains to be seen.''

While the stock prices of other big European media companies, including Vivendi of France and British Sky Broadcasting, have been in the doldrums, analysts said an initial public offering of Bertelsmann could find buyers.

''What all investors want today is content, or some play on content,'' said Conor O'Shea, an analyst at Kepler Capital Markets, a brokerage firm. ''This could tap into the demand for that kind of thing.''

Bertelsmann owns an impressive array of content, including Random House books and FremantleMedia, the producer of reality TV programs and game shows that have been sold into myriad markets around the world.

Yet Bertelsmann's biggest earner remains RTL, a television company that owns or controls channels in Germany, France, the Netherlands and other countries. While European channels with mass-market audiences generally remain strongly profitable, investors are worried that results will suffer as more viewers defect to new digital channels or Internet-borne entertainment.

Bertelsmann's dependence on RTL was illustrated by 2011 financial results published Wednesday; the television business delivered 1.1 billion, or $1.46 billion, of Bertelsmann's total of 1.75 billion in operating earnings, which slipped from 1.83 billion a year earlier. With revenue growing only slowly at RTL as well as Bertelsmann's magazine business, Gruner + Jahr, and its services arm, Arvato, and falling at Random House, new sources of growth are needed.

Among other things, Bertelsmann wants to expand in developing markets like China, India and Brazil, which now deliver less than 10 percent of the company's revenue. Digital operations, meanwhile, provide 2 percent of profit, Mr. Rabe said, though some areas, like e-books, have been growing sharply.

After taking over, Mr. Rabe quickly brought in a new executive, Thomas Hesse, former head of the digital business of Sony Music Entertainment, to develop a growth strategy and to oversee Internet initiatives at existing businesses.

Elsewhere in the executive suite, Mr. Rabe has some voids to fill. Shortly after he took over, Gerhard Zeiler, chief executive of RTL, announced that he was leaving to take a job at Turner Broadcasting, a division of Time Warner. And Bertelsmann has yet to name a successor to Mr. Rabe as chief financial officer.

''It's important to the family and the management to have someone who is not only qualified but who also fits into the team,'' Mr. Rabe said separately, during a news conference.

Sensitivities over corporate culture are nothing new at Bertelsmann, where the aggressive style of Mr. Middelhoff, a member of the board of The New York Times Co., is said to have irked Liz Mohn, the family matriarch. Bertelsmann watchers say that one of the reasons Mr. Rabe was anointed was that, in 2006, he oversaw the buyback of a 25 percent stake in Bertelsmann that had been held by the Belgian investor Albert Fr?. At the time, the Mohn family was vehemently opposed to another option for that stake -- an I.P.O.

Yet Mr. Hesse said the new decision to consider an I.P.O. had been ''initiated together'' with Mrs. Mohn, after discussions about how to safeguard the family's investments. Another possibility, executives said, is the sale of a stake to a bigger outside partner. Bertelsmann used this approach to create BMG Rights Management, the joint venture with K.K.R., as well as a vehicle for investments in education, called University Ventures Fund.

While Mr. Hesse said Bertelsmann would continue to develop what he called ''speedboats'' like the venture fund, it is also looking to reel in some bigger fish. One of these slipped out of its grasp recently when BMG lost out in the auction of the publishing business of the music company EMI, which was won by Sony/ATV, a partnership between Sony and the estate of Michael Jackson.

Bertelsmann executives said they were optimistic that regulators would require Sony/ATV to sell some EMI rights catalogs in order to win approval for their bid.

''We will of course take a look at these when they come onto the market,'' Mr. Rabe said.